Issue #4 (cont.) (Volume 13 2016)

The authors investigate the impact of structural monetary policy shocks on ex-post equity risk premium (ERP) of aggregate and sectoral FTSE indices and 25 Fama-French style value-weighted portfolios. They find that monetary policy shocks negatively affect the ERP but at the sectoral level, the magnitude of the response is heterogeneous. Further, monetary policy shocks have a significant negative (positive) impact on the ERP before (after) the implementation of quantitative easing (QE). The empirical evidence provided in the paper sheds light on the equity market’s asymmetric response to the BoE’s policy before and after the monetary stimulus.

Keywords: monetary policy, equity risk premium, quantitative easing, monetary policy shocks, structural vector autoregression, Bank of England, Taylor monetary policy rule, unconventional monetary policy, output gap, inflation gap, Okun’s law.
JEL Classification: E5, E30, G0, G1

This study examines if the prospectus disclosure of the motives for an initial public offering (IPO) explains the long-run performance of equity issuers using hand-collected data for 245 IPOs from the Stock Exchange of Thailand (SET), and also the Market for Alternative Investments (MAI), in the 12-year period between 2001 and 2012. The stock returns of the IPOs were investigated using cumulative abnormal return (CAR) and buy-and-hold abnormal return (BHAR). The authors find a significant impact for the level of use-of-proceeds disclosure on IPO underpricing, and further that the ex-ante uncertainty and signalling hypotheses explain the IPO underpricing phenomenon in the Thai IPO market. Furthermore, Thai firms citing investment needs show significant positive abnormal returns after the offering, but issuers that state general corporate purposes and debt payments motives underperform. The authors provide evidence that the offering size and bull-market conditions significantly affect the IPO pricing and the strategic disclosure of information in the prospectus. Our results are robust, having been subjected to a wide range of sensitivity checks.

Keywords: Prospectus disclosure, IPO performance, Thailand.
JEL Classification: G14, G30, G32

The main purpose of the present study is to investigate the relationship between macroeconomic variables such as interest rate, price level, money supply and real gross domestic product for Iran by considering the effect of economic sanctions during a time period 1980-2014. To analyze the collected data, the VARX method was used and the data were analyzed by Eviews 9 software. Also, for data analysis, the variable of economic sanction was considered as exogenous variable and other variables were considered as endogenous variables. The empirical findings of the study show that there is a significant and bilateral relationship between most endogenous variables of the model. Also, it was observed that the variable of economic sanction has a significant effect on the intended macro variables.

Keywords: interest rate, price level, money supply, real gross domestic product, economic sanction.
JEL Classification: E40, E51, F51

Motivated by the growing attraction of the mutual fund industry worldwide, this research seeks to explore the economic benefits contributed by the South African equity unit trust managers over the period from 6 January 2002 to 2 September 2012. The performance statistics of selected equity unit trusts are examined for the overall examination period and two sub-periods: 6 January 2002 to 6 May 2007 and 7 May 2007 to 2 September 2012. The first sub-period captures the bullish performance of the unit trusts before the 2008 global financial crisis. The second sub-period captures the global financial crisis and the European debt crisis before the European Central Bank (ECB) subsequently implemented the outright monetary transactions (OMT) to curb the yields in Eurozone. The risk-adjusted performance measures employed by this study include the Sharpe ratio, M-squared, Treynor measure and Jensen’s alpha. Regardless of the different applications of risk-return parameters employed to evaluate fund performance, the results reveal that, on average, most of the equity unit trust managers in South Africa do not outperform the market proxy on a consistent basis. The majority of the unit trust managers show good performance before the crisis, with subsequent inferiority in performance in turbulent times.

Keywords: unit trusts, active portfolio management, passive portfolio management, performance evaluation, efficient market hypothesis (EMH).
JEL Classification: G11, G12, G14, G15

This paper uses autoregressive jump intensity (ARJI) model to show that the oil price has both GARCH and conditional jump component. In fact, the distribution of oil prices is not normal, and oil price returns have conditional heteroskedasticity. Here the authors compare constant jump intensity with the dynamic jump intensity and evidences demonstrate that oil price returns have dynamic jump intensity. Therefore, there is strong evidence of time varying jump intensity Generalized Autoregressive Heteroscedasticity (GARCH) behavior in the oil price returns. The findings have several implications: first, it shows that oil price is highly sensitive to news, and it does settle around a trend in long-run. Second, the model separates variances of high volatilities from smooth volatilities. Third, the model rejects an optimal path for extracting oil and technology transmission. In fact, the lack of a long-term pattern can cause excessive oil extracting which can result in heavy climatic effects.

Keywords: generalized autoregressive heteroscedasticity (GARCH), jumps, basket, oil price, Organization of Petroleum Exporting Countries (OPEC), Autoregre-ssive jump intensity (ARJI).
JEL Classification: C32, C52, F31

This study examines global shocks and the volatility of the Russian rubble/United States dollar exchange rate using the symmetric Generalized Autoregressive Conditional Heteroscedasticity (GARCH), and Asymmetric Power Autoregressive Conditional Heteroscedasticity (APARCH) models. The GARCH and APARCH are employed under normal (Normal Gaussian) and non-normal (Student’s t and Generalized Error) distributions. Using monthly exchange rate data covering January 1994 – December 2013, the study finds that the symmetric (GARCH) model has the best fit under the non-normal distribution, which improves the overall estimation for measuring conditional variance. Conversely, the APARCH model does not show asymmetric response in exchange rate volatility and global shocks, resulting in no presence of leverage effect. The GARCH model under the Student’s t distribution produces better fit for estimating exchange rate volatility and global shocks in Russia, compared to the APARCH model.

Keywords: exchange rate volatility, global Shocks, GARCH and APARCH models.
JEL Classification: F30, F31, P33

The principal objective of this study is to investigate the relationship between monetary policy and growth of the manufacturing sector in Algeria. Using a structural vector autoregressive model and quarterly frequency data for the period 1980Q1 to 2010Q4, the study finds no evidence that money supply responds to fluctuations in manufacturing sector growth or Gross Domestic Product (GDP) growth. Interest rates, however, are seen to explain nearly a third of the variations in manufacturing output growth, suggesting that the manufacturing sector is sensitive to interest rates. The study also reveals that money supply variations are largely explained by changes in interest rates. A peek at the monetary transmission process reveals that Algeria employs monetary aggregates as the primary operating tool of monetary policy. The monetary authorities adjust total money supply in response to any movements in the rate of interest, probably to keep the rate of interest within a certain target given other developments in the fundamentals. The interest rates, in turn, play an important role in determining variations in manufacturing sector growth. In addition, the interest rates significantly affect exchange rates, which are observed to respond to changes in overall GDP growth. It is the overall GDP growth that has the largest influence on manufacturing sector growth, probably due to strong forward and backward linkages between the manufacturing sector and other sectors of the economy.

Keywords: Monetary policy, transmission mechanism, manufacturing output, oil price shocks.
JEL Classifications: E23, E31, E52

Corporate governance is an envelope for the mechanisms, processes and relations through which corporations are controlled and guided. Consequently, corporate governance affects operational performance and, in turn, stock returns, as Gompers et al. (2003) find. In this research, we use the Korea Corporate Governance Stock Price Index (KOGI) to test a possible linkage between corporate governance and shareholder wealth in Korea.Factor mimicking portfolios sorted per KOGI are constructed to estimate a corporate governance risk factor (“good minus bad”). By augmenting this new factor to the existing factor models (Fama and French, 1993; Carhart, 1997) to fit multiply imputed data, we find evidence that corporate governanceinfluences stock pricing in Korea.

Keywords: CG; Risk factor; Factor-mimicking portfolio; Long-short portfolio; Multiple imputation.
JEL Classification: G11, G12, G34, C11

In the world of finance and portfolio management, “beta” refers to the sensitivity of a security’s return, to the sensitivity of the “market” portfolio and is an indication of the level of systematic risk, i.e., the amount of risk that a company’s equity shares with the entire market. Correct values for beta are crucial for institutional portfolio managers, as the client contract almost always calls for a portfolio beta approximately equal to 1.0. Typically, beta is estimated using Ordinary Least Squares, but OLS is reliant on some very stringent assumptions. Here, betas are computed and compared using OLS and four robust regression algorithms. Minimum sum regression is identified as the superior robust regression algorithm to estimate beta.

Keywords: Financial Beta, Ordinary Least Squares, Robust Regression, Portfolio Management.
JEL Classification: C21, G11

The article highlights the forecasting of development of the credit market in Ukraine on the basis of regression analysis and based on a number of macroeconomic factors. It provides a matrix of coefficients for pair correlations for the calculation of the volume of loans given by banks and non-bank financial institutions, foreign economic agents and inter-economic actors. It gives partial regression models for determining the volume of loans according to the market’s segments. It carries out the forecasting of the credit market and the volumes of loans given by its segments.

Keywords: credit market of Ukraine, forecasting, regression analysis, pair correlation.
JEL Classification: G21, G23, Е51

This study contributes to the existing literature by combining the multiple methods to clarify the influence of the macroeconomic factors on the real estate investment trust (REIT) index in three Asian countries. The authors, first, use an autoregressive distributed lag (ARDL) bounds test to find that a long-run equilibrium exists between the REIT index and the interest rate, inflation rate, and stock index for China and Singapore. The authors, then, analyze the long- and short-run elasticity of the macroeconomic variables on the REIT index. Finally, using the Granger non-causality test, the authors demonstrate that a unidirectional relationship, in which inflation-rate shifts cause REIT index changes, exists in Japan and Singapore and that a wealth effect, in which stock index movements cause REIT index changes, exists in Singapore. The findings have economic implications for investors seeking to gain from REITs using macroeconomic factors.

Keywords: REITs, macroeconomic factor, ARDL bounds test, ARDL long-run model, error-correction model, Granger non-causality test.
JEL Classification: C22, G11, L85, D53, C58, F14